Corporate tax cuts

Coalition:

Tax cuts for small and medium enterprises

The Coalition was aiming to cut the tax rate for big businesses with an annual turnover of more than $50 million to 25 per cent by 2026/27, but the laws failed to pass the Senate. This plan would have cost the federal Budget $65.4 billion.

The Government was only able to pass tax cuts for small and medium-sized enterprises (SMEs) with less than $50 million annual turnover. A rate cut from 30 per cent to 27.5 per cent started on July 1, 2018, and more will follow.

The rate was scheduled to drop to 25 per cent by July 2026, but the Coalition will bring those tax cuts forward so SMEs will pay a corporate tax rate of 25 per cent from July 1, 2021.

Increase the unincorporated small business tax discount

The Government will also bring forward, from July 1, 2026 to July 1, 2021, the 16 per cent small business income tax offset for unincorporated small businesses with annual turnover of less than $5 million.

Unincorporated businesses are taxed through the personal income tax system, so this ensures they will receive a benefit equivalent to the cuts to the company tax rate at the same time as incorporated SMEs.

Instant asset write-off

The $20,000 instant asset write-off, first introduced in the 2015-16 Budget, was increased to $25,000 and extended until June 30, 2020. The increased threshold applied from January 29, 2019.

Labor:

'Australian Investment Guarantee'

It also announced all businesses operating in Australia would enjoy a new "Australian Investment Guarantee" (AIG), which it said was "a permanent accelerated depreciation scheme".

It would allow all businesses to "immediately expense" 20 per cent of the value of eligible depreciable assets in the first year of all new investments, with the balance depreciated in line with normal depreciation schedules from the first year.

To help pay for the cost of the SME tax cuts, Labor said it would delay introduction of the AIG to July 1, 2021.

Budget impact:

The expected cost to the budget of bringing forward the tax cuts will be $3.2 billion over the four years to 2021-22.

The Government says it would be mostly offset by improved revenue, and savings achieved from ditching proposed tax cuts for big companies.

It said the tax cuts were expected to benefit about 3.3 million businesses employing 6.6 million Australians.

Update: 2019 Budget announcement of further business tax cuts

On April 2, the Government announced further changes to business taxes in its 2019 Budget.

Tax cuts for small and medium businesses would be brought forward and would include businesses with turnovers below $50 million.

The tax rate would drop from 27.5 per cent in the 2019-20 financial year to 25 per cent in 2021-22 - five years earlier than planned.

The Government said the move would benefit about 970,000 companies employing about 5.2 million workers.

The Budget also extended the instant write-off to cover assets up to $30,000, for businesses with turnovers less than $50 million.

The Government said more than 350,000 companies have used the existing write-off and it expected about 22,000 additional businesses to now be eligible.

The legislation relating to the instant asset write-off was passed after the Budget, with Labor's support.

Multinational corporate taxation

Coalition:

Australia was one of the early movers in delivering the first stage of the Organisation for Economic Co-operation and Development (OECD) action plan to combat base erosion and profit shifting (BEPS) by multinationals.

Since then the Government has implemented a number of its suggestions, including strengthening Australia's transfer pricing rules to prevent profit shifting by multinationals through excessive related party payments.

It has also introduced country-by-country reporting rules, requiring multinationals to report to the ATO on their global operations, including income derived and tax paid in each country in which they operate.

The Government has also gone beyond the BEPS recommendations by:

Implementing the Multinational Anti Avoidance Law (MAAL) to collect more tax from multinationals. The ATO says more than $7 billion in sales annually is expected to be returned to the Australian tax base

Implementing the Diverted Profits Tax (DPT). Also known informally as the Google tax, the DPT introduced a new 40 per cent penalty rate on multinationals with global income of $1 billion or more that enter into arrangements with offshore-related parties that lack economic substance. It was expected to raise about $100 million in revenue annually

Establishing a Tax Avoidance Taskforce. The Government gave the ATO $679 million in additional funding over four years for 1,000 experts, including new jobs for 390 specialised officers

Increasing penalties for multinationals failing to lodge tax documents on time and making false or misleading statements to the ATO. It applies to entities with global incomes of $1 billion or more

Introducing a new Tax Transparency Code. This is a voluntary code that aims to give the public some information about company tax affairs

Providing new whistleblower protections for people who disclose information about tax misconduct to the ATO. The amendments will apply to disclosures made on or after July 1, 2018

The Government was looking to tax digital giants on their revenue, rather than profits, but last month said it would not do that for the time being, and would instead wait for the OECD plan

Labor:

Labor's core multinational tax package includes:

The closure of debt deduction loopholes. Labor would eliminate safe harbour and arm's length debt tests in the thin capitalisation rules and have a single test (worldwide gearing ratio), which it said would save $890 million in revenue over four years (and $3.15 billion over 10)

Changing the tax transparency reporting threshold and restoring Labor's $100-million threshold for public reporting of tax data for private companies. This threshold was raised to $200 million in a Liberal-Greens deal. Labor says a lower threshold would see the public release of tax data for another 600 large private firms

Having a community sector representative on the Government's tax advisory body, the Board of Taxation. Labor says tax advisers and multinational companies are well-represented on the board, but there are no community representatives. It says this potentially skews the interests and feedback given by the board. This measure would require one of the 11 non-government board members to be from the community sector

Provide an additional $50 million per annum to the ATO for multinational tax compliance. Labor says this measure is revenue positive. It is expected to generate $200 million in revenue over the four years to 2019-20

Stop multinationals from getting a tax deduction when they send royalty payments to arms of their own company that pose a multinational tax risk. Labor wants to deny multinationals a tax deduction for royalties when they are paid by a firm with $1 billion or more of global turnover to a related party overseas. It will apply to transactions subject to the 'sufficient foreign tax test' aspect of the Diverted Profits Tax, or with a harmful 'patent box' regime. Labor estimates, based on a Parliamentary Budget Office (PBO) costing, that closing the royalty tax "loophole" would improve the budget bottom line by $680 million over the forward estimates and $2.3 billion over the "medium term".

Introduce a "Tax Haven Blacklist", which will include places like Cayman Islands and Bermuda, to better vet investments from countries that fail to comply with international standards.

'Tax transparency package'

Labor has also unveiled a "tax transparency package", which includes some measures already announced or implemented by the Government.

Make country-by-country public reports, giving detailed tax information about companies, publicly available. The Federal Government and OECD want these reports to be private. Labor has said it would make them public

Offer US-style financial rewards for whistleblowers who report entities evading tax to the ATO. Labor proposes, where whistleblower information results in more tax being paid, to allow them to collect a share of the tax penalty (capped at $250,000 or 1 per cent of the penalty figure, whichever is higher)

Mandatory shareholder reporting of tax haven exposure. Labor proposes changes to the Corporations Act 2001 so companies would be required to disclose to shareholders' dealings in any "international material tax risk jurisdiction" — that is, known or suspected tax havens. Labor has also said it would stop companies claiming illegitimate deductions for travel to and from known tax havens.

Public reporting of AUSTRAC data. Labor would require the annual public release of international funds transfer data, which would show aggregated cash flows sent to overseas destinations including low-tax and non-compliant jurisdictions (tax havens)

A publicly accessible registry of the beneficial ownership of Australian listed companies. Labor wants a publicly accessible central registry of the beneficial ownership of companies, trusts and other corporate structures to be established

Dodgy phoenix directors would be named and shamed under a Labor proposal to stamp out illegal phoenix activity. Labor, if elected, would grant the tax commissioner the powers to name and shame individuals and entities as a penalty for the most serious tax offences

Black economy crackdown

Coalition:

The Government has established a multi-agency Black Economy Standing Taskforce comprising key enforcement agencies.

Changes to government procurement practice: From July 1, 2019 businesses wishing to tender for Commonwealth Government procurements over $4 million will need to have a "satisfactory" tax record

Contractor reporting: On July 1, 2018 the Government extended the taxable payments reporting system to the courier and cleaning industries. On July 1, 2019 the Government is extending the reporting system to the road freight, security and information technology industries

Illegal tobacco: The Government set up an Illicit Tobacco Taskforce, which it said had already made a number of seizures and arrests. From July 1, 2019 all duty on tobacco will be collected when it enters the country, rather than when it enters the domestic market. The Government said its package would result in a net gain to the budget of $3.6 billion by 2021-22

Cash payment limit: From January 1, 2020, an economy-wide cash payment limit will apply to all cash transactions for goods and services over $10,000

Update: 2019 Budget announcements on further ATO funding

On April 2 the Government announced as part of its 2019 Budget it would provide $1 billion over four years to the ATO to extend the operation of its Tax Avoidance Taskforce. The additional funding is expected to deliver $3.6 billion in revenue over the period.

It would also give $42.1 million in extra funding to target larger businesses and wealthy individuals to ensure they are paying their income taxes and superannuation liabilities on time. It is estimated this would deliver $103.6 million in extra revenue over four years.

It announced $9.2 million over four years to target sham contracting. These funds would be used to create a dedicated sham contracts division within the Fair Work Ombudsman, which would continue to receive $2.3 million in annual funding beyond the 2023 financial year.

There were also further changes to target the black economy. The Government said from July 1 2021, it would make lodging an income tax return a requirement for holding an ABN from July 1, 2021.

Also, from July 1, 2022, it proposed requiring ABN holders to confirm the accuracy of the details provided on ABN applications annually. It estimated a revenue gain of $22.2 million through to 2022-23 under the ABN changes.